Post – GST / Problems notwithstanding, there is a bright spot in the textile sector. An uptrend is seen in the output of cotton yarn, blended and hundred per cent non-cotton yarn during the current fiscal (2018- 19). A worrying factor, however, is the decline in the production of cloth or fabric during the same period. As per the latest data, cotton yarn production rose by 5 per cent in April – October 2018-19 over the same period last year. In quantity terms, cotton yarn production increased from 2,348 mn kg to 2,468 mn kg. Blended and hundred per cent non-cotton yarn was up from 951 mn kg to 984 mn kg, bringing the total spun yarn output to 1,282 mn kg from 1,199 mn kg, a 4.6 per cent increase.
There was an addition of four mn spindles to the spinning capacity. Despite that, yarn production has remained stagnant during the past three years. Production was estimated at 4,064 mn kg in 2017-18, 4,055 mn kg in 2016-17 and 4,138 mn kg in 2015-16. For quite same time, fabric production in the organised mill sector has been shrinking due to government policies. The output declined by 6.5 per cent to 1,199 mn sq mtr from 1,282 mn sq mtr during the period under review. Production in the decentralised sector increased by 6 per cent, from 37,137 mn sq mtr to 39,367 mn sq mtr. The increase is notwithstanding the obsolete technology employed by the sector for many years now. The decentralised fabric sector is also weak and needs consolidation and modernisation.
The fabric sector is estimated to be worth $84.4 bn in 2015. Of this, only $4.9 bn (6 per cent) is exported and the rest 94 per cent is consumed locally. The powerlooms segment leads the fabric production with a 59 per cent share, followed by knitting (26 per cent) and handlooms (11 percent). Based on the opportunities in the global fabric trade of $115 bn, in which China has a share of 45 per cent ($52 bn) against India’s 3 per cent share ($4 bn). India can look forward to doubling its share in world fabric trade in the next five years,” says DL Sharma, CITI Vice Chairman. Needless to say, a vibrant fabric industry determines the success of garment manufacturing as well as exports. The sector however, suffers from high cost incompetitiveness due to exogenous factors on which a manufacturer has no control. The high incidence of blocked / embedded taxes / levies / surcharge etc. of about 5.33 per cent in the export consignment are not refunded at any stage, as reported in these columns earlier. This is a big bottleneck that needs to be taken into consideration while resolving issues of this sector. China gives a 17 per cent. Rebate on exports which, in effect, amounts to an implied subsidy of 8-10 per cent Bangladesh grants a 5 per cent subsidy to its garment exporters, if fabric is made from yarn sourced locally to promote the domestic value chain.
Indian fabric makers also suffer from high transaction cost. Moreover, interest cost in India is much higher than in China. Hence CITI’s request for including fabric in the Rebate of State Levies (ROSL) package and providing a 5 per cent ROSL rate for five-seven years. CITI also wants the benefits under the Merchandise Exports India (MEIS) Scheme for processed fabric to be increased from two to four per cent. It may be surprising that the Indian garment makers have to pay duty on imported fabrics. Bangladesh imports the product from China, duty free, convert them into garments and sell them to India, also duty free. This has put the Indian garment industry at a major disadvantage. The situation is not far off when Indian brands shift sourcing from India to low cost duty free countries such as Bangladesh and Sri Lanka. Another disquieting feature is that post-GST there has been a sharp increase in imports of garments from Bangladesh.
Despite the huge challenges facing the Indian textile and clothing sector in the global market, there are growing opportunities as well. It is up to the industry to rise to the occasion and take full advantage of the situation. The on-going trade war between China and the US, for instance can go a long way in pushing up this country’s textiles and clothing exports to the developed world, especially the US and the European Union (EU),which taken together, account for a 60 per share of the global market.
Further, it is known for some time that the Chinese economy has been slowing down due to high demand at time and other factors. It is projected to grow by 6.2 per cent in 2019 and 2020, according to the International Monetary Fund (IMF) January World Economy outlook update. On the other hand, India’s Gross Domestic Product (GDP) is projected to grow by 7.5 per cent and 7.7 per cent respectively in these two years. As a result, China’s cost of textile production remains high enough, losing the competitive edge of lower cost of production in the last few months. China’s growth in the global textile and apparel trade has declined after the economic crisis in 2009.
The ever growing domestic demand in China has put pressure on its exports. In addition, over the last decade, China is no longer a low cost destination as at used to be. Dr. KV Srinivasan, Vice Chairman TEXPROCIL opines that India’s image in the global market has also been improving top International brands like Zara, Gap, Marks and Spencers etc., are keenly looking forward towards sourcing from India. This offers huge opportunities to exports of textiles and clothing products in Africa, Latin America, Australia, Japan and South Korea. “The depreciating rupee is having a positive impact on the profitability of the exporters. The dynamism and entrepreneurship of the exports combines with the policy support from the government will certainly take exports of textiles and clothing to greater heights in the days to come,” Dr. Srinivasan says.
According to him among the challenges, the most serious one is the increasing global protectionism. The World Bank notes that top 60 economics have adopted more than 7,000 protectionist trade measures on a net basis, since the financial crisis and tariffs are worth more than $400 bn. The US and the EU were each responsible for more than 1,000 of restrictions. Other countries such as Argentina, Russia and Japan had imposed trade protectionist measures between 365 and 275. The three countries which have liberalised trade rules on a net basis are Brazil, Saudi Arabia and Tunisia over a period.
yarn in the EU, China, Turkey is 4 per cent, 3.5 per cent and 5 per cent respectively whereas it is zero duty for competing countries like Bangladesh, Vietnam and Cambodia. Similarly, fabrics attract duty of 8 per cent, 10 per cent, 8 per cent, 2 per cent and 12 per cent in the EU, China, Turkey, Canada and Vietnam respectively, whereas it is zero duty on imports from Bangladesh, Cambodia, Pakistan, Indonesia etc. This duty differential has put Indian exporters of cotton textiles at a distinct disadvantage.
Indian exporters also face challenges at home. These include high interest rates, volatility of cotton prices and high logistics costs. Added to these, is the steep reduction in export benefits. Prior to GST, the total export benefits for made-ups, on an average, amounted to 13-41 per cent of the FOB value of exports. However, during the GSP regime the amount dropped to 11.70 per cent. The low margin of the textile industry (less than 1-2 per cent) made this reduction unbearable for the exporters. All this had made Indian textiles products 10-15 per cent cost less than those of competing countries.
As has been reported earlier in these columns, Indian textiles and clothing exports face discriminatory duties in leading export markets. Import duty on The Indian textiles industry has strength across the entire value chain. Its share in GDP is 6 per cent and 14 per cent in exports. In the global textiles and apparel trade our share is just 5 per cent compared to China’s 39 per cent. Exports grew marginally by 0.7 per cent to $36.73 bn in 2017-18 over the preceding year. But these exports failed to meet the target of $45 bn set by the government. Apparel exports declined by 7.5 per cent during the same period. Cotton exports had a share of 10 per cent and a growth of 6.4 per cent. Textiles and apparel exports are estimated to touch $185 bn by 2024-25. However, after the phasing out of export quota in 2005, India’s export performance has been below expectations.
India’s total textiles and apparel products registered a meagre 2.28 per cent increase in 2018-19 (April – October) over the same period of the previous years. In value terms, exports rose to $21.95 bn from $21.46 bn in this period. Apparel exports declined by 11.44 per cent, from $10 bn to $8.8 bn. Exports of yarn, fabrics and made-ups posted a 15.39 per cent growth from $8 bn to $9.2 bn.